New Wave From Southeast Asia Is Hitting New York Real Estate

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They seemed to come out of nowhere -- a powerful group of Hong Kong billionaires who appeared in June to revive Donald J. Trump's troubled Riverside South project with millions in cash and a promise to finance the multibillion-dollar development.

But while the names of the new investors were largely unknown here, the size and power of their move into New York came as no surprise to brokers familiar with the recent influx of overseas investment.

Over the last two years, a surge of money from Hong Kong and Southeast Asia has swept into the city's battered real-estate market in a variety of high-profile deals. Drawn by bargain prices and a market that offers a haven from the turmoil of speculation in the Far East, those investors, largely ethnic Chinese from Hong Kong and Singapore, have bought some of the city's choice properties.

And while the deals have been modest in number, their size and scope has brokers predicting that the new Asian investors could become the deal makers of the 1990's, driving the real-estate market as the Japanese did in the 1980's, and the Canadians and the Europeans did in the 1970's.

"Ten years ago, it would have been unheard of," said Mr. Trump, who had never dealt with Hong Kong or Southeast Asian investors before the Riverside South deal. "There's a great deal of money and a great deal of expertise in the Far East, and they're beginning to spread their wings."

The Riverside South project is the most notable of the new Asian investments in New York, but in its shadow have been other deals, including the sale of the 1,000-room New York Palace Hotel to interests from Brunei for $202 million in November, the 561-room Hotel Millenium to Singaporean investors for $75 million in February, and an older, 1.1-million-square-foot office building at 40 Wall Street to a Hong Kong group for $8 million last May.

While Asian investors have also bought property on the West Coast, from mini-malls in Los Angeles to sprawling residential and commercial projects in Vancouver, British Columbia, many investors have focused on New York because of its supply of quality buildings and its stature in international trade and finance.

"Chinese firms have just begun to look internationally," said Edmund Yu, president of Kinson Properties, which purchased the Wall Street building for the company's Hong Kong owners. "They figure it is time to come out, and now they have the capital to play with the big boys."

European, Canadian and Japanese companies still have by far the largest holdings of all foreign investors in New York, but the new investors have begun to alter the nature of the market, as Asian companies open offices here to search for potential investments and local brokers learn the ways of doing business with companies from Hong Kong and Southeast Asia.

"Millions are flowing out of Hong Kong now," said Peter Friedman, president of the New York commercial real-estate firm of Peter R. Friedman Ltd. "Two years ago, they weren't even on the scope. This year, they're going to be number one."

The entry of the new Asian investors has been fueled by an enormous buildup of capital in the Far East, much of which was initially invested in Asia and is only now being turned toward the United States. Most Dynamic Area

For the last decade, the regional economy of China, Hong Kong and Southeast Asia has been the most dynamic in the world. And while Japan still languishes in a recession, economic growth elsewhere in Asia is expected to increase by more than 7 percent next year, nearly triple the pace projected for the United States, according to estimates from the International Monetary Fund.

Like many Asian investors, Mr. Yu said, the owners of Kinson Properties began their forays into real estate by buying in areas they were most familiar with -- in their case, Hong Kong and China. In China alone, the company has invested up to $1.5 billion since the late 1980's, Mr. Yu said.

The company's New York purchase was small in comparison, but was done in part to establish an overseas base, an important consideration for many Hong Kong companies in preparation for the transfer of the British colony to Chinese control in 1997, he said.

Another reason, Mr. Yu added, was that for many Hong Kong investors, buying into New York has become cheap.

Back in the 1980's, top-quality office space in New York went for as much as $500 a square foot. Today, sale prices in the volatile Hong Kong market have risen to about $1,200 a square foot, while New York prices have fallen to about $150 to $200 a square foot for prime office buildings, a level that he believes is as low as it will ever go.

Kinson Properties bought the older building at 40 Wall Street for $7 a square foot, although it has required extensive renovation that will likely push the final cost to around $50 a square foot.

"The differential is just too much," Mr. Yu said. "There is a huge price disparity. They can't understand why people would sell at that price."

The prices in New York in the 1990's dropped substantially from the preceding decade, when Japanese investors helped push the market to high levels.

From 1984 to 1990, the total value of Japanese-owned real estate in New York State, most of which was invested in the city, jumped from $800 million to over $10 billion, according to figures from the Federal Bureau of Economic Analysis.

But after the flurry of buying through the late 1980's, new Japanese investment has dropped off. Investment from the Middle East, Canada and Europe also has slowed from the heady pace of the late 1980's.

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Although the Japanese buying led to warnings about the selling of America, the actual Japanese share of the city's real-estate market is small. At best, Japanese companies -- the single largest group of foreign real-estate investors -- own only about 3 percent of the $2.7 trillion in commercial real estate in New York City, according to figures from the real-estate firm of Cushman & Wakefield. Driving the Market

While their share was small, they represented a significant portion of new investment and were able to drive the prices of the market.

In a similar fashion, brokers in New York say that the new Asian investors have the potential to assume a powerful position in the market. They have concentrated their investments in hotels and properties in financial trouble, which has often allowed them to buy at favorable prices.

The value of property owned by Asian companies, with the exception of those from Japan, is below even 1 percent of all commercial property, according to figures from the Bureau of Economic Analysis.

But at least for the moment, they are striking some of the biggest and most prominent deals.

"Right now, I would guess they are dominating about 50 percent of the buying power in the market," said Darcy A. Stacom, a senior director of Cushman & Wakefield who represented the buyers in the 40 Wall Street sale. "If they're willing I could see them eventually matching the share of the Japanese."

One of the largest real-estate purchases in New York City last year was made by the Amedeo Hotels Limited Partnership, which bought the New York Palace Hotel on Madison Avenue for $202 million. The company is owned by the royal family of Brunei, an oil-rich sultanate on the island of Borneo. Quarter of the Action

The hotel purchase alone accounted for nearly a quarter of the $874 million in commercial property sales in the city last year, according to figures from Cushman & Wakefield.

This year, the attention has been focused on the agreement to build the Riverside South project between Mr. Trump and a group of Hong Kong investors that includes the New World Development Company, headed by Y. T. Cheng and his son, Henry, and the Shui On Group, headed by Vincent Lo.

The Riverside South project covers 75 acres on the Upper West Side of Manhattan along the Hudson River, from 59th to 72d streets.

The $2.5 billion project had been languishing until the arrival of the Hong Kong investors, who purchased Mr. Trump's $250 million debt on the land for $90 million and made a commitment to finance the construction of Riverside South.

Mr. Trump said he had never dealt with investors from Hong Kong or Southeast Asia before, but on this project he found himself facing offers from four Asian companies -- two from Hong Kong, one from Singapore and one from Malaysia. He added that he is currently working with yet another Hong Kong group on a separate commercial and residential development.

Despite the size of the recent investments from Asia, some brokers here caution that the new generation of overseas investors are different from the Japanese and may never become as influential. Extremely Selective

Jack A. Shaffer, managing director of international sales for the New York real-estate firm of Sonnenblick-Goldman Company, said the new Asian investors had been extremely selective, picking off properties that are selling at bargain prices. Whether they will continue buying as the market moves upward is uncertain, he said.

In addition, the investors have plenty of opportunities in their own backyards, particularly China, where returns can be far higher.

"You've got to remember that they have alternatives," he said. "The major sales in greater New York are coming out of Southeast Asia, but what will happen in the future isn't really that clear yet."

But Paul Chan, the New York representative of the Glorious Sun group from Hong Kong, said he believed the big purchases of the last two years are only the beginning of a larger movement of capital from Asia. His own group spent $32 million on a block on condominiums at Worldwide Plaza, an office and residential development on West 50th Street between Eighth and Ninth Avenues.

Mr. Chan said the crowded Hong Kong real-estate market and the unpredictable nature of real-estate investment in China made New York an appropriate investment for companies seeking a larger international presence.

Even if investment from Hong Kong and Singapore ultimately fades, he added, there are many investors from Thailand, Malaysia, Indonesia and potentially the biggest player of all, China itself, who are set to enter the fray.

"All the big investors are out there looking," he said. "Just looking at the economic potential of China, I am very confident of investment here in the future."

A version of this article appears in print on August 29, 1994, on Page A00001 of the National edition with the headline: New Wave From Southeast Asia Is Hitting New York Real Estate. Order Reprints|Today's Paper|Subscribe